Chinese Firm Has American Accent
It conducts its board meetings in English. Its chief executive studied at USC and is said to prefer Diet Coke to tea. Its Beijing offices sport a big electronic board displaying stock prices. And its executives are fond of talking about serving shareholders.
“We are trying to create value for our shareholders,” its director of investor relations said.
Talk like that may sound odd coming from a company whose stock is 71% owned by the Chinese government and whose CEO, however direct his management style, ultimately answers to Beijing.
But over the last two decades, CNOOC Ltd. has built a reputation in Asia as a well-run company with a distinctly Western and outward orientation, a cut above most other Chinese state-owned enterprises.
Now, it’ll need to draw on all of its experience to accomplish its most ambitious overseas move yet. Thursday, the oil company made an unsolicited, $18.5-billion cash offer to acquire El Segundo-based Unocal Corp., topping a pending $17-billion bid by Chevron Corp.
The offer is the largest ever by a Chinese company for a foreign firm, and it sets up the first bidding war between American and Chinese companies. American politicians immediately questioned the offer, raising the specter of China as an emerging economic and political rival of the United States and the security implications of its taking over a major U.S. energy concern.
But CNOOC took great pains to follow the protocol and style of a savvy American company. It lined up two of Wall Street’s top investment banks, Goldman Sachs and JPMorgan, to advise it on the deal. It launched an English-language website specifically to explain its offer to Americans. And its CEO, fluent in English from his days in Los Angeles earning a master’s degree in petroleum engineering from USC, immediately set out to win the publicity battle.
Fu Chengyu, CNOOC’s 54-year-old chief, suggested that Americans’ concerns stemmed largely from a misunderstanding of his firm. “I think once they understand the company, they will be more accepting of CNOOC,” he said Thursday.
To the Chinese, it’s not surprising that CNOOC is attempting the ambitious offer. Though a distant third in size among China’s “big three” state-controlled oil firms, CNOOC was created to pursue foreign deals.
From its inception in 1982 under Beijing’s early economic reform policies, CNOOC was charged with exploring and developing offshore oil and natural gas fields by forming partnerships with outsiders. The company’s development in many ways parallels China’s evolution from a planned economy to one based largely on the market.
It was one of the first Chinese companies to go into business with foreign firms. It also was one of the first to sell stock to the public. You can buy its shares on the New York Stock Exchange.
It has taken other steps to be more like Western companies. Unlike other chiefs of Chinese state-owned enterprises, Fu doesn’t have an entourage when he travels. English is spoken so commonly in CNOOC offices that people say, “Excuse me,” when getting off elevators.
In recent years, CNOOC has stepped up its global acquisitions, buying stakes in South Asia, in Australia and most recently in Canada’s dry oil sands. CNOOC, with revenue of $6.7 billion last year, is the largest offshore oil producer in Indonesia.
Its attempt to outbid Chevron, a company five times its size in total stock market value, represents the latest in a string of bold moves by major Chinese companies to fulfill global expansionary dreams. It follows Lenovo Group’s purchase of IBM Corp.'s PC business and appliance maker Haier Group’s bid to buy Maytag Corp.
CNOOC’s effort, though, differs from the others, not only in size but also in its close link to Chinese national interests. It has become the model for Beijing’s explicit policy, laid out a year ago, to pursue and secure energy resources abroad to feed its booming economy and reduce its growing reliance on imported oil, whose prices have skyrocketed in part because of China’s surging demand. A successful Unocal purchase would add depth to CNOOC’s Asian reserves and projects.
CNOOC also may have the best chance of any Chinese oil company to pass muster with U.S. government officials. Unlike PetroChina and Sinopec, the top two Chinese oil players, CNOOC has had no involvement in cutting energy deals in countries such as Venezuela, Sudan and Iran that have been at odds with American foreign policy.
As such, CNOOC is the “most suitable candidate to pass all the scrutiny of the U.S.,” said Ma Xiaoye, director of the Shanghai-based think tank Academy for World Watch.
CNOOC’s executives insist that politics aren’t driving their bid for Unocal; it’s strictly commercial. They point out that unlike most other state-owned companies, CNOOC has eight directors, four of them outsiders, who took pains to hire independent experts to evaluate the soundness of the deal.
CNOOC’s culture is open and transparent, analysts and bankers say, and the company hasn’t been stained by scandals that have damaged the reputation and stocks of other state-owned companies.
Company executives also downplay their connection with Beijing.
“We’re a government company, but we don’t get a penny from the government,” said Yang Hua, CNOOC’s chief financial officer.
Still, as much as CNOOC talks and walks like a typical publicly traded company, there’s no denying that it is accountable to Beijing -- a factor that will be weighed by U.S. shareholders and government officials alike.
“I can’t think of a company that’s closer to the government. The blood tie, it’s right there,” said Wenran Jiang, a University of Alberta political scientist who has studied China’s hunt for energy in Canada and throughout the world. The Unocal bid “is absolutely government-sanctioned,” he added. “And it will be a concern.”
Some analysts would contend that state-owned companies get all of their financing from the government, still the biggest shareholder even in those that have sold stock to the public.
A Chinese state-owned enterprise “is not based on a profit-making premise,” said Matthew Cairns, an Asia specialist at research firm Economy.com in Sydney, Australia.
CNOOC acknowledges that its Unocal bid required approval from the highest levels of government. And to finance its offer, CNOOC’s state-owned parent company, Beijing-based China National Offshore Oil Corp., committed to providing $7 billion in loans, with an additional $6 billion coming from a state-owned bank. The parent has many other operations, including a fertilizer business.
CNOOC executives wouldn’t talk specifically about the government’s hand in the company’s strategy or in the offer for Unocal. Instead, they spoke about the lengthy and deliberative process on the board, suggesting that this showed the independence of directors and attention paid to commercial interests and shareholder value -- characteristics of responsible American companies.
Fu was a driving force behind the offer, people familiar with the company say. Liang Weipei, an industry analyst at Hong Kong brokerage Tai Fook Securities, said Fu and his management team showed sophistication in pursuing the offer. The offer price was skillfully set below what many analysts were expecting but high enough to leave some room for a bump up, Liang said. It also showed restraint, he said, and thus was viewed favorably by CNOOC investors.
CNOOC’s U.S.-traded shares rose $1.84 to $55.15 on Thursday in an otherwise down market.
Liang said he didn’t think Beijing was orchestrating the offer: “Given China’s energy shortage in recent years, it’s understandable why outsiders would presume that the government was behind the proposal. So far, I don’t see signs to prove that. I guess only if the acquisition is completed will we find out.”
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A look at the companies
Although CNOOC’s revenue has been lower than Unocal’s, its profit has been higher. CNOOC also produces more oil, but Unocal’s natural gas production is much higher.
Headquarters: Hong Kong
Main business: Offshore and natural gas exploration, development, production and sales
Major areas of operation: Bohai Bay, western South China Sea, eastern South China Sea, East China Sea and off Indonesia
Headquarters: El Segundo
Main business: Exploration and production of crude oil and natural gas, plus geothermal energy production
Major areas of operation: Alaska, Gulf of Mexico, Canada, Indonesia, Bangladesh, Thailand, Myanmar, Azerbaijan
Sources: CNOOC, Unocal. Researched by Times librarian John L. Jackson
Times staff writer Mark Magnier in Beijing and researcher Cao Jun in The Times’ Shanghai Bureau contributed to this report.